[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                     WHAT'S IN YOUR DIGITAL WALLET?
                      A REVIEW OF RECENT TRENDS IN
                      MOBILE BANKING AND PAYMENTS

=======================================================================

                             HYBRID HEARING

                               BEFORE THE

                   TASK FORCE ON FINANCIAL TECHNOLOGY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 28, 2022

                               __________

       Printed for the use of the Committee on Financial Services     
  

                           Serial No. 117-82
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT] 

                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
45-132 PDF                 WASHINGTON : 2022                     
          
----------------------------------------------------------------------------------- 

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York             JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                   TASK FORCE ON FINANCIAL TECHNOLOGY

               STEPHEN F. LYNCH, Massachusetts, Chairman

JIM A. HIMES, Connecticut            WARREN DAVIDSON, Ohio, Ranking 
JOSH GOTTHEIMER, New Jersey              Member
AL LAWSON, Florida                   PETE SESSIONS, Texas
MICHAEL SAN NICOLAS, Guam            BLAINE LUETKEMEYER, Missouri
RITCHIE TORRES, New York             TOM EMMER, Minnesota
NIKEMA WILLIAMS, Georgia             BRYAN STEIL, Wisconsin
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 28, 2022...............................................     1
Appendix:
    April 28, 2022...............................................    25

                               WITNESSES
                        Thursday, April 28, 2022

Carrillo, Raul, Associate Research Scholar, Yale Law School, and 
  Deputy Director, Law and Political Economy Project.............     5
Choudhary, Mishi, Legal Director, Software Freedom Law Center....     7
Marcellin, Renita, Senior Policy Analyst, Americans for Financial 
  Reform.........................................................     8
McAllister-Young, Kia, Director, America Saves, Consumer 
  Federation of America (CFA)....................................    10
Talbott, Scott, Senior Vice President, Government Affairs, 
  Electronic Transactions Association (ETA)......................    11

                                APPENDIX

Prepared statements:
    Carrillo, Raul...............................................    26
    Choudhary, Mishi.............................................    37
    Marcellin, Renita............................................    41
    McAllister-Young, Kia........................................    48
    Talbott, Scott...............................................    51

              Additional Material Submitted for the Record

Lynch, Hon. Stephen F.:
    Written statement of the American Bankers Association........    57
    Joint written statement of the Consumer Federation of 
      America, the National Consumer Law Center on behalf of its 
      low-income clients, the National Consumers League, and U.S. 
      PIRG.......................................................    73
    Written statement of PayPal Inc..............................    89

 
                     WHAT'S IN YOUR DIGITAL WALLET?
                      A REVIEW OF RECENT TRENDS IN
                      MOBILE BANKING AND PAYMENTS

                              ----------                              


                        Thursday, April 28, 2022

             U.S. House of Representatives,
                Task Force on Financial Technology,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The task force met, pursuant to notice, at 2:42 p.m., in 
room 2128, Rayburn House Office Building, Hon. Stephen F. Lynch 
[chairman of the task force] presiding.
    Members present: Representatives Lynch, Himes, Lawson, 
Torres, Williams of Georgia; Davidson, Sessions, Luetkemeyer, 
and Steil.
    Chairman Lynch. Good afternoon. The Task Force on Financial 
Technology will now come to order.
    Without objection, the Chair is authorized to declare a 
recess of the task force at any time. Also, without objection, 
members of the full Financial Services Committee who are not 
members of the task force are authorized to participate in 
today's hearing.
    Today's hearing is entitled, ``What's in Your Digital 
Wallet? A Review of Recent Trends in Mobile Banking and 
Payments.''
    I will now recognize myself for 5 minutes for an opening 
statement.
    Digital wallets are software applications used to 
facilitate electronic payments and transactions and are rapidly 
becoming a larger part of our financial ecosystem. They are 
offered by a variety of players. Digital wallet providers range 
from large technology companies such as Google and Apple, to 
fintech companies such as PayPal and Block, and a consortium of 
banks which offer Zelle.
    The digital wallet space has grown dramatically in recent 
years and reached a value of $120 billion in 2021. In addition 
to payment-focused digital wallets, we have seen the emergence 
of digital asset wallets which can hold cryptocurrencies and 
stablecoins. Digital wallets have grown in popularity, in part 
because of the ease and convenience that they offer, allowing 
individuals to send and receive money quickly with just the use 
of their phone. The use of digital wallets has also raised 
several key policy questions around consumer data privacy, 
security, and vulnerability to fraud.
    Notably, according to a recent report, 18 million consumers 
were defrauded through scams involving digital wallets in 2020, 
and with the rate of adoption, that number is expected to 
increase. So, it is fair to ask whether consumers are 
unknowingly trading the short-term ease and convenience of 
digital payments for the long-term loss of personal financial 
data and a latent vulnerability that could undermine their 
financial security. And as large technology companies enter the 
financial services space, how do we ensure that acquisition of 
personal data is limited and appropriate, and that both 
personal data and financial data are separate and secure?
    From a consumer protection standpoint, the law remains 
unsettled as to how consumer protection laws apply to digital 
wallets, particularly in cases of fraud. The New York Times 
recently published an article that highlighted the major fraud 
issues involved with Zelle, which is a payment app created by 
America's largest banks and other payment platforms. The New 
York Times reported that Zelle had become a, ``favorite of 
fraudsters,'' and that apparently, the major banks were 
reluctant to protect consumers who were unwittingly scammed 
using the platform application that the banks themselves had 
created. So, we are faced with the question, who should be on 
the hook when a consumer has been tricked into transferring 
their hard-earned savings by fraudulent online activity while 
transacting through digital wallets on an online banking 
platform?
    To settle the regulatory ambiguities and to incentivize 
resiliency in digital commerce, the Protecting Consumers from 
Payment Scams Act, which is noticed with this hearing, would 
amend the Electronic Fund Transfer Act to protect consumers 
when they are defrauded into sending money by a scam, or even 
when the consumer was induced to make that payment under false 
pretenses. While proponents of digital wallets point to high 
adoption rates as evidence that digital wallets can promote 
financial inclusion, we should not ignore the fact that most 
financial products, including digital wallets, again, require a 
customer to have a bank account, which in the past has been 
shown to exclude a significant segment of consumers who will 
likely remain unbanked.
    And lastly, as financial services move into the digital 
area, the war on cash continues to spread. As we shift towards 
digital commerce and away from physical cash, we leave behind a 
segment of consumers who rely on physical cash because they do 
not have access to digital products. These gaps continue to 
highlight the need for a public sector digital payment offering 
that allows for instant peer-to-peer (P2P) payments, and also 
protects consumer privacy. Consumers should not be required to 
surrender their personal data every time they make a simple 
financial transaction. That is the Chinese model, and it 
facilitates full-spectrum surveillance of the entire 
population, which is the reality toward which we are moving in 
this country.
    To avoid that looming threat, I recently introduced the 
ECASH Act, which would direct Treasury to design and pilot a 
digital version of cash also known as ECASH. That bill 
progresses the conversation around digital dollar design and 
would work in parallel with other public sector digital 
offerings, such as the Fed-issued central bank digital currency 
(CBDC). ECASH would be distributed directly to and held by the 
public on a hardware secure device. It would allow individuals 
to make instant peer-to-peer payments with no consumer data or 
transaction tracking, and without the use of a bank account. I 
hope that bill will work to address many of the challenges I 
described with digital wallets, and will have a strong 
financial inclusion implication. I look forward to discussing 
the policy questions associated with digital wallets and the 
potential benefits of a public sector offering with our 
witnesses.
    I now recognize the ranking member of the task force, the 
gentleman from Ohio, Mr. Davidson, for an opening statement.
    Mr. Davidson. Thank you, Mr. Chairman, and I especially 
appreciate your emphasis on cash and how it is so vital for so 
many people in our economy. I always say the legal tender in 
the U.S. is the U.S. dollar, not Visa and MasterCard, and it is 
great because it is permissionless and the features include 
privacy. So, thanks again for your emphasis on privacy. I think 
it highlights that a lot of the topics that this FinTech Task 
Force have tackled are truly bipartisan. The growth in payment 
applications continues to drive the development of our digital 
economy, while fostering further innovation. I am glad this 
task force will again serve as a venue to gather the 
appropriate information needed to ensure that future policies 
in this space will not inappropriately hinder innovation.
    As Congress contemplates a Federal standard for data 
privacy, we need to ensure that any future proposals in this 
space: one, will promote data minimization; two, are technology 
neutral; three, will prioritize informed choice and 
transparency amongst consumers; and four, will preempt State 
laws so that we have a national uniform standard for privacy. 
Abiding by these principles will protect liberties that have 
been in place long before these new payment systems were 
developed. And when I speak of this, I am alluding to the 
privacy protections that were embodied within cash transactions 
that existed long before we were even using electricity. The 
privacy concerns cannot be understated as we consider how to 
embrace these new payment tools.
    I understand that some people here today will likely 
discuss the positive impact that digital payments will have on 
financial inclusion. However, I would emphasize that promoting 
convenience to the consumer does not always equate to promoting 
financial inclusion. For example, we already know that distrust 
in traditional financial institutions is one of the main 
reasons why some people remain unbanked or underbanked. This is 
largely because these entities serve as an arm of the 
government via third-party doctrine. They have essentially been 
deputized to serve as agents of the government. In 2019, the 
FDIC reported that 36 percent of unbanked individuals cited 
lack of trust in financial institutions as a reason that they 
remain disconnected from the banking system.
    Therefore, if new digital payment systems look to promote 
financial inclusion, we must recognize that it will only happen 
if we are able to promote trust by protecting consumers from 
having their personal data exploited without their consent, or, 
in some circumstances, beyond their consent.
    Now, as someone who talks regularly about cryptocurrency 
and blockchain applications, blockchain technology, when given 
the chance, I would be remiss, and everyone would surely be 
disappointed if I didn't mention the permissionless nature of 
the distributed ledger technology that alleviates privacy 
concerns because it establishes trust in a different way. As I 
am sure many are aware, blockchain technology offers privacy 
protection and guarantees that traditional financial tools may 
not offer, even though they can serve a common or identical 
purpose.
    Since the title of this hearing was published, I have had 
questions from many people. Does the term, ``digital wallet,'' 
mean that this hearing will primarily focus on crypto? Well, I 
wish that it did focus more directly on crypto. But I mentioned 
this not to shift the focus of the hearing, which is a good 
topic as well, but to point out that the conversation today 
will inevitably lead to further discussion on true peer-to-peer 
permissionless transactions carried out through hardware 
wallets, self-custody on a permissionless distributed ledger 
technology architecture. And that is a conversation that I very 
much look forward to having with my colleagues in a 
comprehensive way, and on an adjacent bill, the Keep Your Coins 
Act, which protects self-custody.
    But back to the focus of today's hearing, I think we will 
hear some repetition from our prior task force hearing back in 
the fall to discuss the CFPB's rulemaking under Section 1033 of 
the Dodd-Frank Act. Like many, I am curious as to how that 
rulemaking will look because it is important to adequately 
address data-sharing issues on the front end and back end of 
digital payments systems. It won't be until the Consumer 
Financial Protection Bureau (CFPB) moves forward with that 
final rule that we can actually see the digital payment space 
progress forward and provide further financial convenience to 
consumers in a responsible manner. Should the CFPB leave any 
open-ended questions with their final rulemaking, I would then 
welcome the opportunity to work with my colleagues on this 
committee to responsibly write legislation that puts consumers 
truly in control of their own data, while allowing the digital 
economy to flourish here in the United States.
    I look forward to the hearing and the discussion with our 
witnesses. Thank you all for being here today, and I yield 
back.
    Chairman Lynch. The gentleman yields back. I do not see Mr. 
McHenry, but we will reserve time for him.
    Today, we are fortunate to welcome the testimony of a panel 
of distinguished witnesses. First of all, we have Raul 
Carrillo, who is joining us remotely. Mr. Carrillo is an 
associate research scholar at Yale Law School, and the deputy 
director of the Law and Political Economy Project. He has also 
been enormously helpful to the committee, and to the task 
force, in drafting legislation, and we are grateful for his 
attendance here today.
    Second, we have Mishi Choudhary, who is the legal director 
of the Software Freedom Law Center.
    Third, we have Renita Marcellin, who is a senior policy 
analyst for Americans for Financial Reform.
    Fourth, we have Kia McAllister-Young, who is the director 
of America Saves at the Consumer Federation of America.
    And lastly, we have Scott Talbott, who is the senior vice 
president of government affairs for the Electronic Transactions 
Association.
    Witnesses are reminded that their oral testimony will be 
limited to 5 minutes. You should be able to see a timer in 
front of you on your screen that will indicate how much time 
you have left, and there will also be a chime which will go off 
at the end of your time. I would ask that you be mindful of the 
timer, and quickly wrap up your testimony if you hear that 
chime, so that we can respect the time of our witnesses and 
task force members.
    And without objection, your written statements will be made 
a part of the record.
    Mr. Carrillo, you are now recognized for 5 minutes to give 
an oral presentation of your testimony. Welcome.

 STATEMENT OF RAUL CARRILLO, ASSOCIATE RESEARCH SCHOLAR, YALE 
  LAW SCHOOL, AND DEPUTY DIRECTOR, LAW AND POLITICAL ECONOMY 
                            PROJECT

    Mr. Carrillo. Thank you, Chairman Lynch, Ranking Member 
Davidson, and members of the task force. I echo my previous 
remarks before this task force and the committee, urging 
policymakers to demand public accountability, but also public 
innovation. I will tab in my initial remarks to two sets of 
problems in the digital wallet space that must be overcome in 
order for us to have a safe and inclusive financial system. For 
simplicity's sake, I will call these two problems the banking 
problem and the data problem.
    First, the banking problem. Many wallets are holding 
balances that are not insured by the FDIC. In cases where a 
pass-through insurance is provided, customers are protected 
against the collapse of a bank, but not necessarily a wallet 
provider or coin issuer. This can become an unstable situation. 
Deposits that are not regulated as such often form the base 
layer of financial crises. This is in part due to a nod in 
banking law. For instance, Section 21 of the Glass-Steagall Act 
makes it illegal for an entity to accept deposits without being 
regulated by a banking regulator.
    Unfortunately, the Act has not defined, ``deposit,'' 
meaning that regulators cannot easily invoke Section 21 or any 
other provision of Federal law to prevent nonbanks from 
engaging in general banking activities. I believe the recent 
White House memo on stablecoins makes strides in this 
direction, but that the Stablecoin Tethering and Bank Licensing 
Enforcement (STABLE) Act, co-sponsored by Chairman Lynch, 
Representative Rashida Tlaib, and Representative Chuy Garcia, 
achieves these goals more comprehensively, including by 
reaching non-stablecoin wallets.
    Second, the data problem. Fintech increasingly relies on 
data maximization, as both Chairman Lynch and Ranking Member 
Davidson indicated. Data maximization is a constant expansive 
accumulation of consumer data. New fintech products, like 
digital wallets, may generate helpful information, serving as 
gateways to saving credit and investment. However, they also 
operate within massive information networks, including consumer 
reporting agencies, specialty screening agencies, data brokers, 
and government agencies, which amplifies systemic security and 
privacy risks by compounding data, potentially creating a data 
ecosystem that is also too-big-to-fail. The risk of thefts, 
hacks, and surveillance are especially pronounced for low-
income communities of color that already suffer 
disproportionately from financial injustices and privacy 
violations.
    Unfortunately, no overarching Federal law structurally 
limits the collection, use, and sale of personal data among 
corporations. Moreover, there are few rules governing 
information sharing between these institutions and the 
government. Case in point, it was recently revealed that for a 
period of over 2 years, the Department of Homeland Security 
collected records from Western Union for any money transfer 
over $500 to or from California, Texas, New Mexico, Arizona, 
and Mexico. I grew up on the border and find the fact that my 
community is not protected by the principles of the Fourth 
Amendment to be entirely unacceptable.
    The nature of public-private surveillance should inform the 
way that we talk and think about financial inclusion. At this 
point, leading scholars of data governance, security, and 
privacy agree that laws on the books do not sufficiently 
protect consumers. Definitionally, our notice and consent laws 
cannot empower people to protect their privacy, because when 
people consent to share data, we don't know how it will be used 
or how it may help or harm others. A comprehensive CFPB in that 
rulemaking may offer one way forward.
    Ultimately, however, Congress should pass legislation 
instantiating data minimization, including by limiting the 
collecting, processing, and usage of data to only that which is 
required to carry out an explicit, narrow, permissible purpose; 
otherwise, it is not allowed. For example, signing up for a 
credit card online should not lead to targeted advertising or 
new accounts regardless of whether one clicks, ``I agree,'' to 
data usage policies that consumers do not understand and firms 
cannot and do not uphold.
    Most importantly, I support legislation creating a digital 
dollar and digital public options for a wide array of products, 
including bank accounts for all. However, the new public system 
must also be attuned to data minimization. Accordingly, I 
strongly support the ECASH Act proposed by Chairman Lynch, 
which would aim to replicate the privacy, security, and 
financial inclusion functions of physical cash. ECASH would 
work on stored value devices, storing the money offline on 
hardware rather than online on software. This has distinct 
security, privacy, and financial inclusion advantages. The way 
it would work is, I would simply tap a card against another 
person's card, or a phone against another person's phone, or a 
phone or a card against a retail kiosk. The payment would 
initiate regardless of whether I have an internet connection, 
so long as the device has judged that there was no 
counterfeiting or other foul play.
    Just like physical cash, ECASH would include its own 
security features and would not be used for every financial 
transaction. But it would: one, reach the 1 in 3 adults in the 
U.S. who lack high-speed internet access in their homes and 
often in their neighborhoods who are not reachable by private 
fintech; and two, preserve a space for financial privacy in the 
future.
    In my humble opinion, we are now having a comprehensive 
national policy discussion about financial privacy for the 
first time since the Patriot Act. Now is the time for public 
accountability and public innovation rather than false promises 
and fear. Thank you.
    [The prepared statement of Mr. Carrillo can be found on 
page 26 of the appendix.]
    Chairman Lynch. Thank you, Mr. Carrillo.
    Ms. Choudhary, you are recognized for 5 minutes. Thank you.

STATEMENT OF MISHI CHOUDHARY, LEGAL DIRECTOR, SOFTWARE FREEDOM 
                           LAW CENTER

    Ms. Choudhary. Thank you, Chairman Lynch, Ranking Member 
Davidson, and distinguished members of the task force and the 
committee. I am pleased to appear before you today. I am the 
legal director of the New York-based Software Freedom Law 
Center.
    One could not send or receive email, surf the World Wide 
Web, perform a Google search, or take advantage of many of the 
other benefits offered by the internet without free and open-
source (FOSS) software. FOSS developers create and advance 
solutions to complex problems that are decentralized, open, and 
accessible to everyone. My last point today will concentrate on 
getting regulatory clarity, having an open source of the 
underlying tech interoperability, and the importance of 
comprehensive Federal privacy legislation.
    What we need is a currency or an electronic token that is 
equivalent in functionality to cash, and offers all of its 
benefits, including anonymity, privacy, autonomy, no 
transaction fees, and addresses all of the flaws of cash. In a 
rapidly-evolving technological environment, you must seek 
payment methods that are convenient, inexpensive, and secure. 
Our legacy transaction systems have suffered from high fees, 
limited access, and modest innovation that has beset many 
financial inclusion efforts. Most of the current solutions 
available in the market cater to the bank customer and don't 
address those who primarily work in the informal economy or are 
paid in cash. That part of the American population also desires 
the modern conveniences that technology offers without losing 
their privacy.
    The transition to digital payments was already underway, 
but the pandemic accelerated adoption to a new level. Despite a 
massive rate of adoption of these forms of payment, unlike the 
Chinese or the Indian market that are mobile first, the U.S. 
market still relies heavily on credit cards. A U.S. customer 
does not necessarily have the same motivation as their Indian 
or Chinese counterparts, especially because credit card systems 
are backed up by various laws like the Fair Credit Billing Act 
(FCBA), the Electronic Fund Transfer Act (EFTA), and the Credit 
Card Accountability Responsibility and Disclosure Act (Credit 
CARD Act). Non-traditional players in the market have attempted 
to address some of these issues through the use of mobile 
devices to improve access to financial products and services. 
Digital wallets are one such example. In general, they are 
linked to a bank account, a credit or debit card, or a prepaid 
card, but they don't have to be.
    Cryptocurrencies, which are right now stored in hot and 
cold wallets--``hot'' means that they are connected to the 
internet, and cold storage wallets do not require online 
servers and can store the assets in the wallet--offer an 
additional security layer. As we think about money in the age 
of the internet, we must design for a future that is in the 
public's interest, incorporates privacy by design, and 
facilitates financial inclusion.
    The super apps that are popular in countries like China, 
and are gaining popularity around the world, underscore the 
fact that concerns about data protection and privacy have not 
been adequately addressed, and that the current market options 
lack privacy-oriented messaging systems integrated with 
payments. We need a currency or electronic token that is 
equivalent in functionality to cash. Such a design finds 
support in the streets, as resonated by David Chaum in the 
1990s, and recently-introduced electronic currency and secure 
hardware cash by Representative Lynch that directs Treasury to 
commence two stage pilot programs to test a variety of ECASH 
technologies.
    The risks of hard money for working-class people have 
always been lost in convenience or inflation. Working people 
back to the Jacksonian era in the United States have much 
experience with various payment systems chosen by employers 
that have hurt them, so they favor hard money, government coins 
that are deep in the fabric of democratic finance in the United 
States. In the 21st Century, it should not matter whether what 
you are waving at the cash register is a card issued to you by 
a bank, or a credit union, or a hardware object that the United 
States Treasury has certified as the way that ECASH is carried 
around.
    The structure of ECASH does not have the quality of 
traceability and it preserves privacy. The software underlying 
any of this technology must be free and open-source to enable 
public review and audit of the source for potential security 
issues. If used correctly, with adequate guardrails, digital 
money presents an opportunity for financial inclusion. Any such 
efforts must provide consumer protection and data privacy 
aspects, often found to be woefully lacking in several such 
offerings around the globe. What we need is to have 
multidisciplinary research in the development of technologies 
that work for those who are most disadvantaged by the current 
system, those who don't have bank accounts and have to pay high 
fees to access their own money, built with privacy by design.
    Thank you for the opportunity to appear before you today, 
and I look forward to your questions.
    [The prepared statement of Ms. Choudhary can be found on 
page 37 of the appendix.]
    Chairman Lynch. Thank you, Ms. Choudhary.
    Ms. Marcellin, you are now recognized for 5 minutes to give 
an oral presentation of your testimony. Thank you.

STATEMENT OF RENITA MARCELLIN, SENIOR POLICY ANALYST, AMERICANS 
                      FOR FINANCIAL REFORM

    Ms. Marcellin. Thank you, and good afternoon, Chairman 
Lynch, Ranking Member Davidson, and members of the task force.
    As a daughter of immigrants who had limited access to the 
traditional banking system when they first entered the U.S. and 
supported their family abroad using remittances, I am 
supportive of technology and financial firms that truly seek to 
expand financial inclusion. However, the question is still open 
on whether these products actually expand financial access. And 
if we assume they do, their failure will disproportionately 
harm the very communities they aim to serve, hence why they 
need to be properly regulated. Policymakers should also ensure 
there are sufficient safeguards to protect consumers from fraud 
and erroneous transactions, abusive data collection, and 
companies flexing their increased market power as more large 
technology firms enter the financial services industry.
    It is hard to see how digital wallets promote financial 
inclusion when they are usually account- and app-based. They 
usually require the consumer to link the wallets to a bank 
account or credit card and a smartphone. Unbanked consumers 
tend to have lower household incomes than those with bank 
accounts, are often paid with paper checks, and spend about 10 
percent of their income on services just to access their own 
money. Additionally, unbanked households are more likely to 
cancel or suspend their cellphone service for cost reasons, 
hence limiting their ability to use mobile payments.
    The Federal Reserve Bank of Atlanta suggested a better way 
to increase financial inclusion, by giving people who depend on 
cash, access to digital payment methods that do not depend on 
traditional bank accounts. This is one of the goals of the 
newly-introduced ECASH bill sponsored by Chairman Lynch. While 
policymakers should continue pushing policies that would expand 
banking access, such as postal banking, they should still 
prioritize ensuring that those who rely on cash and remittances 
are able to transact in our modern economy, many of whom are 
lower-income communities of color.
    Digital wallets do not adequately protect consumers. Many 
banks fail to provide their customer any recourse when they are 
victims of fraud schemes using Zelle or other peer-to-peer 
apps. The same quality instantaneousness that makes digital 
wallets a favorite among consumers, including myself, also 
makes it a favorite among scammers. The Consumer Financial 
Protection Bureau (CFPB) received over 9,000 complaints about 
digital wallets between 2017 and 2021. In April 2021 alone, 
there were almost 1,000 digital wallet complaints. PayPal, 
which owns Venmo, and Square, which owns Cash App and Coinbase, 
accounted for more than two-thirds of all digital wallet 
complaints through April 2021.
    Customers frequently lack recourse when problems arise with 
their digital wallet. Many apps do not have a customer service 
number and lack any human touch points. This results in 
customers delaying reporting scams and can lead to consumers 
losing the right to be reimbursed. I go into much more detail 
in my written testimony on the current legal framework that 
governs digital wallets. But the basic point is that the myriad 
of existing laws do not adequately protect consumers when fraud 
or erroneous transactions occur. The definition of an, 
``unauthorized transaction,'' does not cover scams that induce 
the customer to send money or cases where the device was 
stolen. If this fraudulent transaction was linked to a debit 
card or claim, they are not required to reimburse the consumer.
    In regards to privacy concerns, the main law governing 
privacy for financial institutions has gaps when we try to 
apply it to digital wallets. It is not currently interpreted to 
cover tech companies and only covers non-public personal 
information. Technology firms are able to combine consumers' 
transactional data with their browsing history. They can 
combine public and private information to reveal sensitive data 
about the consumer, all out of the consumer's control. Lastly, 
the emergence of digital wallets as a tool for payments, 
particularly when those wallets are hosted by major technology 
firms, also raises questions about economic concentration and 
anti-competitive practices, which I urge the committee to 
further explore.
    In my written testimony, I outlined numerous steps the CFPB 
can take to address erroneous and fraudulent transactions. We 
also urge Congress to pass the Protecting Consumers From 
Payments Scams Act, which will give the CFPB unquestioned legal 
authority to take the recommended measures.
    Thank you for your time, and for the opportunity to speak 
before you today.
    [The prepared statement of Ms. Marcellin can be found on 
page 41 of the appendix.]
    Chairman Lynch. Thank you, Ms. Marcellin.
    Ms. McAllister-Young, you are recognized for 5 minutes for 
an oral presentation of your testimony. Thank you.

  STATEMENT OF KIA MCALLISTER-YOUNG, DIRECTOR, AMERICA SAVES, 
              CONSUMER FEDERATION OF AMERICA (CFA)

    Ms. McAllister-Young. Chairman Lynch, Ranking Member 
Davidson, and members of the task force, it is an honor to be 
invited to testify and contribute to the ongoing conversation 
of digital wallets and mobile payment. My name is Kia 
McAllister-Young, and I am the director of America Saves, a 
national campaign that focuses on building financial stability, 
resilience, and confidence, particularly with low- to moderate-
income earners, and supporting them in their quest to save 
successfully, reduce debt, and get on a path toward building 
wealth. America Saves is an initiative of the Consumer 
Federation of America (CFA).
    My goal today is to highlight the consumer voice and 
experience that will hopefully add reverence and additional 
context for you while working toward policy and regulation. 
Experts agree, including my colleagues and advocates at CFA, 
that concerns about this topic include the high prevalence of 
fraud and scams, a lack of accountability, very few consumer 
protections beyond disclosures and warnings, ineffective 
consumer privacy, specifically around financial data privacy, 
and an overall need to strengthen Federal and State oversight.
    My work at America Saves allows me to interface and engage 
on a continual basis with everyday consumers from all racial 
and socioeconomic backgrounds, many of whom are oblivious to 
the risks they are taking when using digital payment options 
like PayPal, Cash App, and Zelle, as opposed to cash, credit, 
and debit cards. Their choice to use these platforms is largely 
due to the convenience and honestly strategic marketing and 
placement. During the checkout process, consumers are presented 
with several different payment options, but are rarely as 
enthusiastically presented with the risks associated with those 
options. Consumers naturally trust these fintech platforms 
because a clear delineation between financial institutions and 
mobile payment applications does not exist. The result of that 
intentional opaqueness is consumers believing that mobile 
payment options are regulated with the same scrutiny as banks 
and credit unions.
    Consumers' misguided trust of the fintech platform leaves 
them vulnerable to fraud, scams, and payments being held by the 
platforms with very limited and, at times, no recourse at all. 
In my written testimony, I shared my own experience of how 
PayPal held my funds for over 30 days back in 2018, and I have 
heard numerous similar stories through my work, like that of 
Lauren, who was a victim of fraud using PayPal that took over 8 
months to find restitution, and Samira, a Muslim woman, an 
immigrant from Trinidad and Tobago, and a small business owner 
with several instances of her funds being held without clear 
cause.
    The lack of clarity, consumer protections, and transparency 
is not evident to consumers until it is too late. Still, the 
use of fintech products has dramatically increased for two 
apparent reasons: public health; and inflation. Since the 
pandemic, these payment options have been heavily embraced as 
quick, available, and even safer ways to make transactions, and 
inflation is driving low- to moderate-income earners toward 
fintech credit products in order to access their pay early.
    Other gaps that remain without more oversight and 
regulation include immigrant citizens who often send money back 
to their families and their native countries that are 
disproportionately subject to alarmingly high remittance fees, 
and the current trend of fintech platforms offering 
cryptocurrency rather than encouraging users to work toward 
achieving financial stability through saving for an emergency. 
Because the foundational motivations for use of mobile payment 
applications are not likely to change, the onus to protect 
consumers through education, transparency, policy, oversight, 
and regulation simply must be prioritized.
    The good news is that these products can play a role in 
helping consumers manage their finances. But again, Federal and 
State oversight is needed to ensure consumers are protected 
from harmful practices and violations of data privacy. And as 
we work to rebuild our economy and increase financial 
resilience for every American, we must recognize and highlight 
what threatens our nation's ability to save, reduce debt, and 
build wealth. That work is an intersectional joint effort of 
financial education, along with policies and regulations that 
protect consumers from practices that make it hard to be fully 
informed.
    Thank you for your time, and for the opportunity to share 
today.
    [The prepared statement of Ms. McAllister-Young can be 
found on page 48 of the appendix.]
    Chairman Lynch. Thank you, Ms. McAllister-Young.
    Mr. Talbott, you are now recognized for 5 minutes. Welcome.

 STATEMENT OF SCOTT TALBOTT, SENIOR VICE PRESIDENT, GOVERNMENT 
       AFFAIRS, ELECTRONIC TRANSACTIONS ASSOCIATION (ETA)

    Mr. Talbott. Thank you. Good afternoon, Chairman Lynch, 
Ranking Member Davidson, and members of the Task Force on 
Financial Technology. I am Scott Talbott, and it is my 
privilege, as senior vice president of the Electronic 
Transactions Association (ETA), to speak with you today on how 
the modern payments industry is using the latest technology to 
provide secure, fast, and convenient payment services to 
consumers.
    ETA is a trade association that represents the broad group 
of companies that provide electronic products and services, 
including mobile wallets, peer-to-peer (P2P) products, credit 
and debit cards, and other forms of digital payments. Ours is 
an industry that, in North America, moves over $8.5 trillion in 
card and P2P payments securely, reliably, and quickly. In the 5 
minutes that I an testifying today, over 1.5 million consumer 
transactions will be processed. It is heavily regulated at both 
the Federal and State levels and highly competitive. We are 
constantly investing, innovating, and leveraging new 
technologies to create new products and services to serve the 
ever-changing needs of consumers.
    Of all the developments in payments, I want to focus on two 
today, mobile wallets and P2P, which are two different products 
with different use cases, but many similarities. Mobile 
wallets, as has already been noted, is simply a platform to 
store payment credentials on your phone. Instead of reaching 
for a traditional plastic card or checkbook, consumers can 
contactlessly use cards stored in their wallets or in the 
mobile wallets in their phones to make purchases at stores and 
shop online. Mobile wallets make buying goods and services very 
convenient. Tourists can shop anytime, anywhere, with just a 
few clicks on their phone. Mobile wallets also benefit 
merchants by enhancing loyalty programs and, because of the 
speed of a sale, reducing transaction times.
    Another innovation I would like to highlight is peer-to-
peer apps, or P2P. P2P is largely a free and fast service 
designed primarily for the transfer of funds between family and 
friends in order to split the check at a restaurant, or send 
your grandkids some birthday money. P2P payments work by 
linking an individual's bank account and debit, credit, or 
prepaid card with a platform. For those consumers who do not 
have a bank account, we have solutions available as well. There 
are many options to allow cash-based consumers to load cash or 
paper checks onto their P2P wallets on their P2P services. Many 
retailers partner with P2P services to allow this to happen in 
locations across the country. P2P apps are very popular, used 
by tens of millions of consumers, and total transaction volumes 
are forecasted to reach close to $350 billion by the end of 
this year. And P2P offers similar ease of use and conveniences 
as digital wallets.
    The two products, while different on the surface, are 
similar in many ways versus security. For the payments 
industry, security is a top priority. For all payment products, 
including mobile wallets and P2P apps, the payments industry 
employs a robust, holistic, and multi-level approach to 
security. A simple example of this is that the mobile phone 
itself requires a unique authentication to unlock, whether a 
PIN, a facial scan, or a fingerprint. Inside the phone, account 
numbers are not actually stored on the phone but rather use a 
token representing the account number, and the transactions are 
all encrypted, which means it can only be read by participants 
in the payments industry. By demonetizing the payment info, it 
is less attractive to see these.
    Both products advance another top priority for the payments 
industry, namely financial inclusion. The digital wallets and 
P2P services can be used by cash-based consumers and accessed 
anytime. They help to advance this goal.
    Lastly, both mobile wallets and P2P were instrumental 
during the pandemic. By partnering with the payments industry, 
the U.S. Treasury was able to electronically distribute 
billions of dollars in economic impact payments directly to 
millions of consumers' wallets and P2P accounts. Additionally, 
during the pandemic, contactless payments were helpful to 
eliminate the need for touching common services during 
checkouts.
    This discussion just highlights some of the many 
innovations that are happening in the electronic payments 
industry. As I said, our members are investing billions of 
dollars annually to develop and deploy technologies that make 
it easier for individuals to accept, hold, and send or spend 
money securely, and we continue to integrate these ideas in 
technologies to make the current payment system safer and 
stronger.
    One idea of what is next and what is new is crypto assets. 
As payments experts, ETA member companies are closely examining 
crypto space solutions to consider using payments space. While 
cryptocurrencies are predominantly used for investments at this 
point, once the policy framework is in place, ETA members will 
be able to widely deploy crypto for payments use cases. ETA has 
published guiding principles along these lines, and I look 
forward to working with the task force and Congress in general 
to advance good public policy in the crypto space.
    On behalf of ETA member companies, I want to thank you 
again for the opportunity to participate and support this 
discussion, and I look forward to any questions you may have.
    [The prepared statement of Mr. Talbott can be found on page 
51 of the appendix.]
    Chairman Lynch. Thank you, Mr. Talbott. I will now 
recognize myself for 5 minutes for questions.
    Mr. Carrillo, in your testimony, you describe how fintech 
business models often rely on data maximization, which is a 
term to describe the constant and expansive accumulation of 
consumer data, which leaves consumers vulnerable to fraud and 
exploitation. I have seen this in my own experience. You go 
online, and you are trying to buy something simple, like a pair 
of socks from a retailer, and you have to surrender your 
financial history and basically get naked with the retailer 
from a data standpoint in order to make a simple purchase, and 
it is infuriating sometimes, and there is no difference. They 
all seem to be trying to suck as much data out of the consumer 
as they possibly can.
    I was wondering if you could discuss some of the issues 
that come with this level of data exposure and how public 
sector options--you could refer to the ECASH bill that you were 
so helpful on--provide the same convenience and ease of digital 
wallets without data exposure?
    Mr. Carrillo. Thank you very much, Chairman Lynch. I 
appreciate the question and also the invitation to speak about 
the bill. First, I would note that data maximization is the 
business model of many of these companies. And, in fact, they 
charge low fees or claim to charge low fees and have better 
conditions precisely because they collect data with virtually 
no limits, and this is not necessary for a simple payment, as 
you indicated. There are many cases in which I would prefer 
that the information from a payment not be shared, and it is 
not because I am doing anything illegal, and that is the case 
for most people. It is simply that you do not need to surrender 
all of your information every time that you swipe or tap a 
card.
    Now, ECASH brings us into the digital realm. But it reaches 
people who do not have an internet connection, first of all, 
but it also is usable by people who would prefer to have some 
space for privacy. The fact is that most of us use cash in some 
form. We also use debit cards. We use credit cards. We use 
Venmo. We use PayPal. And we know that each of those payment 
instruments entails different privacy and security features and 
accomplishes different functions. With the ECASH Act, we don't 
imagine that people are going to put their life savings on an 
ECASH wallet. But if we want to preserve a space for the 
financial privacy that has existed for thousands of years in 
the next financial upgrade, we need something like ECASH.
    It may be the case one day that there are applications for 
something like a blockchain-based token, but the fact is when 
you put money on a ledger, it is, by definition, seeable by the 
people who operate that ledger. And when we talk about the 
blockchain, encryption may be involved, but we are also talking 
about data maximization in that sense as well. So, really to 
preserve this space, this inclusive private space within our 
payment system, we need to go offline. We need to go low-tech 
and provide this option, at the very least, for everyone. Thank 
you.
    Chairman Lynch. Thank you. Ms. Marcellin, you mentioned in 
your testimony about financial inclusion, and you raised the 
question of whether or not digital wallets are actually in fact 
achieving that financial inclusion.
    Could you talk about some of the barriers that you see? It 
is a noble cause to obtain financial inclusion, but we are not 
there yet, and I am not sure if these digital wallets, as 
currently designed, offer that opportunity. But I would like to 
hear your perspective on that.
    Ms. Marcellin. Yes, absolutely. Thank you for the question, 
Chairman Lynch. The FDIC, in a bank survey from 2019, I 
believe, estimated that about 5.4 percent of households in the 
United States are unbanked. And I believe the amount of 
Americans who use digital wallets or mobile payments is around 
80 percent. It is very likely that most of those people--I am 
not going to say all--who are using these mobile apps are 
people who are banked, and I think some of the solutions are 
public banking options, so postal banking, the ECASH bill that 
has been raised. Also, even if we discuss remittances, the 
United States Postal Service (USPS) can expand the amount of 
countries to whom they offer remittances.
    So, I still believe that there are a lot of digital wallets 
to go further on. People under $60,000, who make $60,000 
annually, people who do not have college degrees, and, again, 
people who are unbanked, the data shows that they are not using 
it at the rates that people like myself are.
    Chairman Lynch. Thank you very much.
    The Chair now recognizes the ranking member of the task 
force, the gentleman from Ohio, Mr. Davidson, for 5 minutes.
    Mr. Davidson. Thanks, again, Mr. Chairman, and, look, thank 
God that the American people aren't waiting for Congress to 
move forward with digital technology, right? They are way ahead 
of this hearing. People are doing this. It is not illegal to be 
doing it. There are people within the government who, frankly, 
want to try to make it illegal.
    They are talking about essentially needing to get 
permission from the government. They even have self-custody for 
crypto, adding reporting requirements, including to IRS forms, 
and without real authorization to do it, frankly, with the IRS. 
And people operate and live their day-to-day lives in a digital 
world and they want to be able to move money digitally, and the 
technology is there to do it; we just don't have the legal 
clarity to help them.
    And then, frankly, the consumer protections around privacy 
and data security likely do as was highlighted around payments 
with the safe credit cards. And people in the crypto space will 
recognize the basic default safety valve, not your keys, not 
your tokens, not your coins. But that has a huge hazard because 
people forget their passwords all day, every day, and if you 
forget your passwords to cold storage, well, they are gone, 
right? Those are high stakes.
    So, I like that we are talking about something that for 
maybe less sophisticated customers, you have some of those 
protections, but we ought not try to eliminate the things that 
other people are already doing. We should put a good framework 
around those.
    Mr. Talbott, let me start with you. As Congress 
contemplates a Federal standard for protecting consumer data 
privacy, it is important that any law can stand the test of 
time. And given the rate we are moving, how do we pull that 
off?
    Mr. Talbott. Thank you, Ranking Member Davidson. In terms 
of privacy, a couple of ideas come to mind. First of all, we 
need a uniform national standard. It is very difficult for 
companies that operate across the country, with anyone with an 
internet connection, to comply with a patchwork of State 
privacy laws. We see this in other areas as well. So, first and 
foremost, would be a uniform national standard. Second, we want 
it to be principles-driven. Technology changes rapidly. The 
products and services that exist today didn't exist a couple of 
years ago, and there will be new products and services soon, so 
having a principles-based approach is key.
    I think other areas or other concepts to think about within 
the space are control and transparency. This ties into a little 
bit of Section 1033 on open banking, gives them the ability to 
understand what is happening with the data, and to have control 
over it, which is key to any uniform national standard.
    And then, one last point, is within the payment space, we 
largely do not see the SKU level data. We don't know that you 
are buying socks. We see the transaction, but we need to keep 
that data and then have a permissible right to use it to fight 
fraud. It is an important part of our fraud fighting efforts, 
and privacy laws should consider that along with other public 
policy goals like law enforcement going forward.
    Mr. Davidson. Yes, thank you. I think you touch on it, but 
don't really quite go there. And kind of in a separate bill 
that would be multi-jurisdictional, and I hope to call it H.R. 
4, would restore the Fourth Amendment, which has been 
substantially eroded. We should recognize a property right for 
people's data. Your personal identifiable information, your 
data, the content you create is really your property. It is 
your data, and we should be protecting that. I would say that 
would be the one principle that I would add, and without you 
verbalizing it, I think you get there. That is kind of where 
you are at. And as I highlighted, the market is way ahead of 
us; 69 percent of retailers now accept some form of contactless 
payment. Could you speak to how those innovations actually help 
small businesses and entrepreneurs?
    Mr. Talbott. Sure. That's a great question. I think for 
small businesses, the ability to accept payments is crucial. 
Whether you just accept cash, you have to also accept payment 
cards, digital payments, and there is lots of competition and 
lots of options in the space. The fact that they can be loaded 
to your mobile wallet makes it easier for small businesses to 
accept payments, knowing that is one of the main form factors 
for customers walking in the door. It allows them to have the 
retailer speak for themselves about what they do with the data. 
It allows them to collect data, and then the speed of the 
transaction helps reduce times. And then finally, the ability 
to be online. All it takes is a website and to accept payments 
is crucial for many small businesses, especially during the 
pandemic. And we saw all of these technologies play out to help 
many small businesses continue to thrive during the pandemic.
    Mr. Davidson. Yes. Thanks for that. I wish I had time to 
highlight how many of these technologies that aren't subject to 
the Durbin Amendment could help small businesses in that way. 
And Ms. Choudhary, I wish I could have gotten to cold storage. 
Thanks for referencing it in your written comments.
    My time has expired, and I yield back.
    Chairman Lynch. The gentleman yields back.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Steil, for 5 minutes.
    Mr. Steil. Thank you very much, Mr. Chairman. Mr. Talbott, 
my colleagues have attached a bill to today's hearing that they 
are calling the Protecting Consumers From Payments Scams Act. 
Scam prevention is a huge priority. In fact, I hosted a scam 
prevention workshop in my home community of Janesville just 
last week. But one of my concerns for this bill is that it may 
not have the desired results. It is looking to have and may 
have some very significant unintended consequences. Can you 
talk about how this proposal would impact the electronic 
transactions ecosystem and the consumers who rely on the 
services?
    Mr. Talbott. Yes, sir. Thank you for the question. I think 
when you think about payments, and these themes have been 
brought out in the hearing today, there are lots of different 
payments systems and lots of different use cases for them, and 
it is important to sort of break them down and understand what 
they are there for. P2P is largely for sending money between 
family and friends. It's very different than other forms of 
payment cards. There are some similarities, but there are 
differences. So generally, you should think of P2P like cash. 
It is electronic cash. If you lose money on the sidewalk, it is 
gone. P2P is not quite the same, but you should think of it 
largely as cash, and since it is free, and immediate, and 
generally irreversible, there is the connection to cash.
    Unfortunately, risk is part of our life. Fraudsters are 
always going to be there. To the extent that we build a 10-foot 
wall, they are going to build an 11-foot ladder. The key is to 
build that 12-foot wall, but it is an ongoing thing that we, 
the payments industry, take very seriously. And the best way to 
think about focusing on the risks associated with P2P is around 
consumer education and prompts that have been built into the 
system. PayPal, for example, has on its webpage a number of 
disclosures, and Venmo requires a verification of the last four 
digits of the recipient's phone number for a first-time sale, 
for example. I think the challenge, though, if you think about 
the bill, which would expand Reg E, is it might alter the 
nature of the speed or the cost related to P2P platforms. And 
that might be an important unintended consequence to consider.
    Mr. Steil. Thank you very much. Let's shift gears a little 
bit if we can. One of the main focuses of this committee, and 
of the Select Committee on the Economy, of which I am the 
ranking member, is financial inclusion. And even though we have 
made a lot of progress, far too many Americans still don't have 
access or don't have a bank account or an account with a credit 
union. And when asked, a significant percentage of unbanked 
respondents are pointing to two key things, a lack of trust in 
financial institutions, and inconvenience, as factors that keep 
them out of the system. How can mobile payments and digital 
wallets foster greater participation in our formal financial 
system?
    Mr. Talbott. That is a great question. Obviously, that is 
another goal. The major priority for the payments industry is 
financial inclusion, if I could answer your questions in 
reverse. In terms of convenience, I think it is obvious the 
value of the convenience factor that mobile wallets and P2P 
services provide, just being able to conduct your transactions 
anytime, anywhere, versus the old days where you have to wait 
for the bank to open or the credit union to open. Now, you can 
do it 24/7 at any location.
    In terms of accessing a bank account, there are many 
solutions that exist which allow cash-based taxpayers to access 
the modern payments world. A simple one is, you can go online. 
If you want to buy the stocks that the Chair mentioned earlier, 
you print out a code, you take that code to a retailer, you 
give them the cash, the retailer scans the code, and the online 
merchant now knows that the stocks been paid for and releases 
them to the consumer. So, it is a wonderful way. It is a 
wonderful technique, technologies that allow cash-based 
consumers to access the internet and use the payment systems.
    Additionally, you can load cash and paper checks directly 
on to your wallet or your P2P account. Many employers are 
offering payroll downloaded to your wallet, and none of these 
require a bank account necessarily. So in terms of convenience 
and trust, those solutions are working to address that. Lastly, 
on trust, that is a difficult one that is in the mind of the 
beholder. I would just say that people don't always trust a 
bank. They may not always trust the Federal Government, and 
they may choose not to be part of the system.
    Mr. Steil. I completely agree that they don't trust the 
Federal Government. I was really concerned that some of my 
Democratic colleagues put forward proposals to allow the IRS to 
track inflows and outflows of bank accounts over a certain 
amount. In a time when we are seeing a large number of people 
unbanked, we actually go and look at the data, and it says they 
don't trust banks, financial institutions, and the government. 
And one of the proposals by my Democratic colleagues is to 
increase the government's intrusion and review, and breaking 
the privacy between individuals and their financial 
institutions moves us in the wrong direction.
    I think we have some amazing opportunities with these 
mobile payments to make sure they are in the hands of every 
individual, and I would suggest to my colleagues, if we look at 
some of the Pew Research as to what percentage of folks have 
access to a smartphone--we dug into that on the other 
committee--and, in particular, how that travels with age more 
than it does with race.
    With that, I will yield back.
    Chairman Lynch. The gentleman yields back.
    The gentleman from Florida, Mr. Lawson, is now recognized 
for 5 minutes. Welcome.
    Mr. Lawson. Thank you, Mr. Chairman, and Mr. Ranking 
Member, for having this hearing. I would like to, again, 
welcome everyone to the committee today.
    Mr. Raul Carrillo, funds stored on a wallet are not 
deposited, and, therefore, are usually not eligible for deposit 
insurance. Some digital wallets provide something called pass-
through insurance, which covers consumer transfer from a direct 
deposit account to allow it. In this scenario, the Digital 
Wallet Provider Act acts as a protective agent and deposits the 
money into the FDIC-insured bank account. Should additional 
protection be created to ensure that digital wallet users are 
not under the false impression that their wallets balance are 
insured? For example, should a wallet provider be required to 
provide user's disclosure of the details, the type of insurance 
that covers the transaction, and the difference between that 
insurance and FDIC insurance? What other protections should we 
consider to protect users against fraud or loss of funds?
    Mr. Carrillo. Thank you very much for the question, 
Representative Lawson. I will just first note that I think that 
this issue speaks to a comment that my co-panelist, Renita 
Marcellin, highlighted, which is that we often talk about the 
provision of these wallets as if it supplies somebody with a 
bank account. However, the very existence and necessity of 
pass-through insurance indicates otherwise. We have PayPal, et 
cetera, establishing relationships with banks for the purpose 
that they aren't providing direct banking services, or they are 
providing partial banking services but need the rest from a 
depository institution.
    Now, I do not think that pass-through insurance is 
sufficient to solve this problem. In many cases, what is 
actually happening is that the wallet provider or a coin issuer 
is commingling funds and putting those in an FDIC account. This 
is not a direct relationship between a consumer and a bank, and 
it does not protect against the failure of the wallet provider 
or the coin issuer. It just protects against the bank failure, 
so it is insufficient. Disclosures may or may not be helpful. I 
think, certainly, we should err in the direction of providing 
more notice and disclosure. But ultimately, we have to fix the 
structural problem here, which is that some wallets are holding 
funds in long-term custody or custody of any significant 
duration, and those are not insured. And there is a fundamental 
problem here in the sense that that should not be allowed, not 
merely that it shouldn't be disclosed. Thank you.
    Mr. Lawson. Okay. Thank you. And, Ms. McAllister-Young, as 
more of the country begin to rely on the internet for essential 
activities, such as banking and financial services, what can be 
done to ensure that consumers in rural areas, which I represent 
a lot of, areas which have little to no broadband access, can 
connect with consumers in heavily-served areas? And what are 
some other factors that we should keep in mind in terms of 
community, access to broadband, and the payment system?
    Ms. McAllister-Young. Thank you so much for that question. 
I tend to work with savers and consumers on a day-to-day basis, 
and access is always top of mind and centered when we think 
about how we can reach everyone in any corner of America. From 
our standpoint, at America Saves, it is about education, so 
also working with people on the ground. We have local campaigns 
and are working with organizations who have direct interface 
with people in the rural parts of America, providing them with 
education, resources, and content that they can disseminate. 
And there is kind of like a trickledown effect.
    As far as the internet and broadband, I am unsure of the 
answer to that. To be honest with you, that is not really the 
work that I do. But what I can say is that from the consumer 
standpoint, it is a huge issue, something that we continue to 
try to resolve and make sure that we are reaching everyone when 
it comes to all types of financial education and access to 
internet and being able to use the mobile wallet.
    Chairman Lynch. The gentleman yields back. I thank the 
gentleman.
    The Chair now recognizes the gentleman from Texas, Mr. 
Sessions, for 5 minutes. Welcome.
    Mr. Sessions. Mr. Chairman, thank you very much, and thank 
you for having this hearing today. I appreciate it very much. I 
find that our witnesses that we have are up-to-date with it and 
speaking about a lot of things which I view as interesting, and 
that is about the education that people bring to the table so 
that consumers understand what they are getting, what those 
limitations may be, and they are willing to move forward as 
they choose.
    Ms. McAllister-Young, you spoke clearly about education 
just a minute ago. Would you mind speaking about if you have 
knowledge otherwise? And Mr. Talbott, perhaps you might lend 
some credibility or a hand to it. Talk to me about the 
education of what might be cryptocurrency users, the kind of 
people they are, the kind of needs that they have, because I 
believe, in looking at this for some period of time, that they 
are highly-educated. They are very smart. They have a fine tune 
about their dollar, what is theirs, what should be theirs, and 
how they want to transact, and what they are after, and I find 
them highly engaged in this process. Could you give me just 
your overview of ideas, because you were talking about 
education?
    Ms. McAllister-Young. Absolutely. At America Saves, we work 
primarily with low- to moderate-income earners. And from a 
perspective of being highly-educated and using cryptocurrency, 
from my perspective--I can only speak for myself and my peers--
everyone, no matter what their income is, has some level of 
interest in cryptocurrency in their own perspective about if 
they are ready to jump in the game or not. But because of the 
work that we do, we are very focused on making sure that prior 
to jumping into something that could be as risky as 
cryptocurrency, that they have financial stability in place, 
meaning they have emergency savings, they know how to save 
successfully. We say that saving is a habit, not a destination, 
so building that habit of saving before they jump into 
something like cryptocurrency.
    We also like to say that an informed consumer is an 
empowered consumer. So. the more information that they can 
get--unfortunately, even with those who are highly-educated 
around cryptocurrency, it is changing so quickly and so much 
that there is always more education to get. And so, the more 
education and the more informed that we can keep them as things 
change around cryptocurrency, the better for all. So, while we 
don't work with a lot of people who are in the cryptocurrency 
game just yet, our goal is to make sure that regardless of if 
they are interested in that or not, they have that very 
foundation of savings first [inaudible].
    Mr. Sessions. Thank you. That is very thoughtful. Mr. 
Talbott?
    Mr. Talbott. Sure. Thank you, Congressman. It is good to 
see you back.
    Mr. Sessions. Yes, sir. Thank you. Thank you very much.
    Mr. Talbott. I think in terms of--
    Mr. Sessions. Even Chairman Lynch sometimes agrees with 
that.
    Mr. Talbott. Looking at the crypto, I think at this point, 
cryptocurrencies is largely an investment use case which has a 
different focus: investor protection, and consumer protection. 
They have not yet moved into the mainstream. We will get there, 
and stablecoins could serve as a bridge between the investment 
and the payments use case. But I think your assessment of the 
investors who are focused on crypto or invest in crypto is 
correct. I also agree with Ms. McAllister-Young that everybody 
is talking about this. And that is why the payments industry is 
spending a lot of time and effort using our current expertise 
with payments to think about how we incorporate crypto into the 
broader payment space, so it is more widely available.
    There are a lot of questions, a lot of policy issues that 
have to be discussed and debated. But at this point, it is 
still on the investment side rather than the payment side.
    Mr. Sessions. I want to thank both of you for your insight. 
I will tell you that I enjoy this important task force that is 
looking at this because I believe that, as the gentlewoman 
stated here, education is the key to knowledge, understanding, 
and expectations. And I find, in particular, the blockchain 
provides a custody similar to what might be back at the old 
county courthouse, a title that you have to go to. And this is 
your own title, this is your own authority, this is a thing 
that you own, and increasingly, as we also develop a discussion 
today about privacy, knowledge, what is yours, and even Ranking 
Member Davidson and Chairman Lynch spoke about the need to 
understand how you get to your account, and how you keep it, 
what is your own. And I think that is important.
    I want to thank both of you for your thoughtfulness of 
having this, and, Chairman Lynch, I will do my best to make you 
love the words. It is good to be back. Thank you.
    Chairman Lynch. Okay. It's good to have you back.
    Mr. Sessions. Thank you.
    Chairman Lynch. The Chair now recognizes the distinguished 
gentleman from Illinois, Mr. Foster, who is also the Chair of 
our Task Force on Artificial Intelligence. You are now 
recognized for 5 minutes. Welcome.
    Mr. Foster. Thank you, Mr. Chairman, and I also thank our 
witnesses. We will just start with a basic question about the 
concept of ECASH. Is this viewed as similar to cash in that if 
you lose your device, you are out of luck? If you are subject 
to fraud, you are out of luck? If someone puts a gun to your 
head, and drags you into an alley, and says, transfer all of 
your ECASH to my device, that there is no recourse at that 
point? It is like they have stolen your cash? Is that the 
concept, or is there an asterisk on that in anyone's mind?
    Chairman Lynch. Where is the question directed to, Mr. 
Foster?
    Mr. Foster. Anyone who is advocating towards the proposal.
    Chairman Lynch. Mr. Carrillo?
    Mr. Carrillo. I am happy to take that question. Thank you, 
Representative Foster, and thank you, Chairman Lynch. We are 
trying to replicate the functions of paper cash, and that 
includes the advantages and disadvantages. In the bill, you 
will notice that there are error resolution rights or rules 
around disclosure of error resolution rights similar to EFTA, 
but those apply to the device rather than to the ECASH itself. 
So, it is the case that if you lose the device, you are out of 
luck, and in some instances, this will be unfortunate. However, 
it is also a mitigating factor against the claims that ECASH 
will swamp the financial system, and it will cause deposit 
flight, that it will fundamentally change the nature of what we 
are doing. We do not expect people to keep their life savings 
in ECASH, on an ECASH wallet in the same way they don't 
otherwise.
    Mr. Foster. Okay. Yes. I understand. So, it will be subject 
to all the same. Now, is there any concept to prevent it from 
being used for ransomware?
    Mr. Carrillo. Well, certainly. The use of cash for any 
illegal activity is illegal, and that is going to exist with us 
for a while. It is not online, though, and most ransomware 
involves all of this software that we are talking about, and I 
would certainly defer to any insight that you, yourself, might 
have as well.
    Mr. Foster. So, the ECASH that you envisage cannot be 
operated online from remote locations? You have to sit there 
and touch your cards together or something like that?
    Mr. Carrillo. It is not online since it does not use the 
internet. Now, a different sort of signal can be used, for 
instance, Bluetooth, the near field communication (NFC) fields 
that we use for credit card payments, et cetera. On their end, 
there is a question of attenuation and distance, but, no, it is 
not for long-distance internet payments.
    Mr. Foster. Okay. That is interesting. Mr. Talbott, when 
you start looking at crypto transactions, it seems to me there 
are two classes then: one, they were just straight payments 
where you want a dollar in and a dollar out; and two, there is 
a second class where the crypto may change value. And it seems 
to me you have to have market regulation. And so, people say 
how do you prevent wash trades, for example? Say, someone buys 
an asset from themselves under two different fake names and 
then establishes a fake market price, sort of a classic abuse 
to the market. Is there any way to prevent that without having 
some regulators seeing the true beneficial owner behind every 
crypto transaction so that they can identify wash trades? Or 
are there other concepts that might work?
    Mr. Talbott. Yes. I would have to give that some thought, 
Congressman, in terms of on the wash. That is more on the 
investment side rather than on the payment side. But I think 
your comment about the fluctuation in currencies is one of the 
hindrances for crypto becoming more mainstream, and a 
stablecoin could serve to bridge the gap between the two. In 
terms of wash sales and crypto sales, I would have to look into 
that and get back to you.
    Mr. Foster. Yes. It seems to me it is a fundamental 
problem. Does anyone else have any thoughts on that, that we 
really have a very separate regulation on identity?
    Chairman Lynch. Ms. Choudhary, would you like to address 
that?
    Ms. Choudhary. Thank you, Mr. Chairman. The identity issue, 
I would say, has been handled very differently by various 
jurisdictions, and we do not have a clear answer right now, 
although some of it is emerging. The European Union has adopted 
a very different approach for crypto transactions to include 
information on the parties involved and outlined anonymous 
crypto transactions for now. But that has obviously raised a 
concern about how much innovation will come out of the European 
Union if the same kind of Know Your Customer (KYC) issues are 
superimposed on that. Major crypto companies have now at least 
unveiled initiatives that are improving the industry's KYC and 
anti-money laundering practices. So far, at least, where we 
have seen cryptocurrencies are involved--
    Mr. Foster. Yes. Do these innovations allow any single 
regulator to see the beneficial owner on either side of every 
crypto transaction, or is that--
    Ms. Choudhary. Right now, there is--
    Mr. Foster. Yes, that seems to be what you have to have 
here, and I was just wondering if there are identity schemes 
that actually provide that?
    Ms. Choudhary. The digital protocol, which has at least now 
been introduced by companies like Coinbase and Circle, enables 
the companies to verify the identities of customers while 
allowing customers to retain control over their personal 
information. But in terms of regulators, the regulation right 
now is not very clear out here other than the travel protocol, 
which has been laid out.
    Mr. Foster. Okay. My time is up.
    Chairman Lynch. The gentleman yields back. Thank you very 
much. The ranking member and I would have liked to go on to 
another round of questions, but there are votes pending on the 
Floor, so I am afraid we will have to leave it here.
    I would like to thank our witnesses. Thank you so much for 
your willingness to come here and help the task force and the 
committee. And thank you for your testimony today.
    The Chair notes that some Members may have additional 
questions for these witnesses, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is now adjourned. Thank you
    [Whereupon, at 3:55 p.m., the hearing was adjourned.]

                            A P P E N D I X

                             April 28, 2022
                             
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